Yahoo facing possible trial before Icahn showdown

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The legal drama will unfold next month if a Delaware judge grants a request made by attorneys for Yahoo shareholders.

The disgruntled shareholders are seeking to cancel an employee severance plan that Yahoo's board adopted shortly after Microsoft made its initial bid of $44.6 billion, or $31 per share.

In court papers filed late Monday night, the shareholder attorneys argue that the legality of the severance plan should be determined in a trial before an Aug. 1 election pitting Yahoo's current board against Icahn and eight other candidates nominated by the billionaire.

Yahoo had no immediate comment Tuesday, but legal and corporate-governance experts expect the Sunnyvale-based company to vigorously oppose the motion for a July trial date.

A trial "would force Yahoo's board and senior executives to answer a lot of questions that they probably don't want to answer right now," said James Post, a Boston University professor specializing in corporate governance and business ethics. "The last thing they want to do is to expose any more information about this severance program or anything else that Icahn could use."

The severance plan has become a flash point in Yahoo's battle with Icahn because it could trigger payments and benefits totaling more than $2 billion to the company's 13,800 employees if they are fired or quit after being reassigned within two years of a takeover.

Icahn hopes to engineer a sale if he gains control of Yahoo's board, but the severance plan would remain a potential obstacle because Yahoo's current board included a provision that will prevent him from rescinding the program before August 2010.

Icahn has been urging Yahoo's board to eliminate the severance plan, citing his desire to persuade Microsoft to renew its takeover bid. The software maker withdrew its last offer of $47.5 billion, or $33 per share, last month after Yahoo's board sought $37 per share.

But Yahoo's board also barred itself from scrapping the severance plan while the company is facing the threat of a takeover or a boardroom coup.

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